econ 101 - test 2
For which pairs of goods is the cross-price elasticity most likely to be positive?
canoes and kayaks
If the cross-price elasticity of two goods is negative, then the two goods are
complements
The price elasticity of demand for a good measures the willingness of
consumers to buy less of the good as price rises.
The supply of aged cheddar cheese is inelastic, and the supply of bread is elastic. Both goods are considered to be normal goods by a majority of consumers. Suppose that a large income tax increase decreases the demand for both goods by 10%.
decrease, and total consumer spending on bread will decrease.
If the quantity demanded of a certain good responds only slightly to a change in the price of the good, then the
demand for the good is said to be inelastic.
In general, elasticity is a measure of
how much buyers and sellers respond to changes in market conditions.
The price elasticity of demand measures how much
quantity demanded responds to a change in price.
Suppose that when the price of good X falls from $6 to $4, the quantity demanded of good Y rises from 30 units to 40 units. Using the midpoint method, the cross-price elasticity of demand is
-0.71, and X and Y are complements.
Suppose that when the price of good X falls from $10 to $8, the quantity demanded of good Y rises from 20 units to 25 units. Using the midpoint method, the cross-price elasticity of demand is
-1.0, and X and Y are complements.
When the price of a good is $5, the quantity demanded is 120 units per month; when the price is $7, the quantity demanded is 100 units per month. Using the midpoint method, the price elasticity of demand is about
.55
When the price of a good is $5, the quantity demanded is 100 units per month; when the price is $7, the quantity demanded is 80 units per month. Using the midpoint method, the price elasticity of demand is about
.67
Refer to Figure 5-15. Using the midpoint method, what is the price elasticity of supply between points C and D?
.73
When the price of good A is $50, the quantity demanded of good A is 500 units. When the price of good A rises to $70, the quantity demanded of good A falls to 400 units. Using the midpoint method, the price elasticity of demand for good A is
0.67, and an increase in price will result in an increase in total revenue for good A.
When demand is unit elastic, price elasticity of demand equals
1, and total revenue does not change when price changes.
Refer to Figure 5-15. Using the midpoint method, what is the price elasticity of supply between points B and C?
1.19
Refer to Figure 5-5. Using the midpoint method, between prices of $70 and $80, price elasticity of demand is
3
If the price elasticity of demand for a good is 1, then a 3 percent decrease in price results in a
3 percent increase in the quantity demanded.
Refer to Figure 5-8. When the price is $15, total revenue is
4500
Which of the following statements is valid when the market supply curve is vertical?
Market quantity supplied does not change when the price changes.
The price elasticity of demand measures
buyers' responsiveness to a change in the price of a good.
Suppose that when the price of ginger ale is $2 per bottle, firms can sell 4 million bottles. When the price of ginger ale is $3 per bottle, firms can sell 2 million bottles. Which of the following statements is true?
The demand for ginger ale is price elastic, so an increase in the price of ginger ale will decrease the total revenue of ginger ale producers.
Which of the following statements is valid when supply is perfectly elastic at a price of $4?
The elasticity of supply approaches infinity.
Refer to Scenario 5-1. Using the midpoint method, what is the income elasticity of demand for pizza and what does the value indicate about the demand for pizza?
The income elasticity is 1 so pizza is a normal good.
For a particular good, an 8 percent increase in price causes a 4 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good?
The market for the good is broadly defined.
A decrease in supply will cause the largest increase in price when
both supply and demand are inelastic.
A good will have a more inelastic demand, the
broader the definition of the market.
if the price elasticity of demand for a good is 0.4, then which of the following events is consistent with a 2 percent decrease in the quantity of the good demanded?
a 5 percent increase in the price of the good
Elasticity is
a measure of how much buyers and sellers respond to changes in market conditions.
The price elasticity of demand for bread
all the above
Suppose good X has a negative income elasticity of demand. This implies that good X is
an inferior good.
Which of the following is likely to have the most price inelastic demand?
athletic shoes
To determine whether a good is considered normal or inferior, one could examine the value of the
income elasticity of demand for that good.
Refer to Figure 5-12. If the price decreased from $36 to $12, total revenue would
increase by $4,800, and demand is elastic between points X and Z.
Suppose the income elasticity of demand is -0.5 for good X. This implies that a 5% decrease in income will cause the quantity demanded of good X to
increase by 2.5%, and X is an inferior good.
If the price elasticity of supply is 1.2, and price increased by 5%, quantity supplied would
increase by 6%.
Refer to Figure 5-4. The section of the demand curve from B to C represents the
inelastic section of the demand curve.
If sellers respond to very small changes in price by adjusting their quantity supplied by extremely large amounts, the price elasticity of supply approaches
infinity, and the supply curve is horizontal.
The price elasticity of demand for bread is
influenced by whether consumers view bread as a necessity or luxury.
Demand is inelastic if the price elasticity of demand is
less than 1
When consumers face rising gasoline prices, they typically
reduce their quantity demanded more in the long run than in the short run.
Which of the following is likely to have the most price elastic demand?
sailboats
The price elasticity of supply measures how responsive
sellers are to a change in price.
If the cross-price elasticity of two goods is positive, then the two goods are
substitutes
When a supply curve is relatively flat, the
supply is relatively elastic.
At price of $1.20, a local pencil manufacturer is willing to supply 150 boxes per day. At a price of $1.40, the manufacturer is willing to supply 170 boxes per day. Using the midpoint method, the price elasticity of supply is about
.81
When studying how some event or policy affects a market, elasticity provides information on the
direction and magnitude of the effect.
When quantity demanded responds strongly to changes in price, demand is said to be
elastic
Suppose that quantity demand falls by 30% as a result of a 5% increase in price. The price elasticity of demand for this good is
elastic and equal to 6.
Refer to Figure 5-1. Between point A and point B on the graph, demand is
elastic, but not perfectly elastic.
Refer to Figure 5-8. When price falls from $25 to $20, demand is
elastic, since total revenue increases from $2,500 to $4,000.
Demand is said to have unit elasticity if the price elasticity of demand is
equal to 1.
When demand is perfectly inelastic, the demand curve will be
vertical, because buyers purchase the same amount as before whenever the price rises or falls.
The price elasticity of demand for mobile phones
will be lower if consumers perceive mobile phones to be a necessity.
Refer to Figure 5-14. Over which range is the supply curve in this figure the least elastic?
$220 to $430
Refer to Figure 5-16. Using the midpoint method, what is the price elasticity of supply between $4 and $6?
1.25
If a 15% change in price results in a 20% change in quantity supplied, then the price elasticity of supply is about
1.33, and supply is elastic.
In January the price of dark chocolate candy bars was $2.00, and Willy's Chocolate Factory produced 80 pounds. In February the price of dark chocolate candy bars was $2.50, and Willy's produced 110 pounds. In March the price of dark chocolate candy bars was $3.00, and Willy's produced 140 pounds. The price elasticity of supply of Willy's dark chocolate candy bars was about
1.42 when the price increased from $2.00 to $2.50 and 1.32 when the price increased from $2.50 to $3.00.
Refer to Figure 5-5. At a price of $50 per unit, sellers' total revenue equals
1250
At a price of $1.00, a local coffee shop is willing to supply 100 cinnamon rolls per day. At a price of $1.20, the coffee shop would be willing to supply 150 cinnamon rolls per day. Using the midpoint method, the price elasticity of supply is about
2.20
Refer to Figure 5-5. At a price of $10 per unit, sellers' total revenue equals
450
If the price elasticity of demand for a good is 4, then a 12 percent decrease in price results in a
48 percent increase in the quantity demanded.
Studies indicate that the price elasticity of demand for beer is about 0.9. A government policy aimed at reducing beer consumption changed the price of a case of beer from $10 to $20. According to the midpoint method, the government policy should have reduced beer consumption by
60%
Suppose the price elasticity of supply for cheese is 0.6 in the short run and 1.4 in the long run. If an increase in the demand for cheese causes the price of cheese to increase by 15%, then the quantity supplied of cheese will increase by
9% in the short run and 21% in the long run.
How does the concept of elasticity allow us to improve upon our understanding of supply and demand?
Elasticity allows us to analyze supply and demand with greater precision than would be the case in the absence of the elasticity concept.
Refer to Figure 5-15. Along which of these segments of the supply curve is supply least elastic?
GH
Refer to Figure 5-12. Which of the following price changes would result in no change in sellers' total revenue?
The price decreases from $24 to $18.
Refer to Figure 5-4. Assume, for the good in question, two specific points on the demand curve are (Q = 1,000, P = $40) and (Q = 1,500, P = $30). Then which of the following scenarios is possible?
The vertical intercept of the demand curve is the point (Q = 0, P = $60).
You and your college roommate eat three packages of Ramen noodles each week. After graduation last month, both of you were hired at several times your college income. Your roommate still enjoys Ramen noodles very much and buys even more, but you plan to buy fewer Ramen noodles in favor of foods you prefer more. When looking at income elasticity of demand for Ramen noodles, yours would
be negative and your roommate's would be positive.
For a good that is a necessity,
demand tends to be inelastic.
The supply of aged cheddar cheese is inelastic, and the supply of bread is elastic. Both goods are considered to be normal goods by a majority of consumers. Suppose that a large income tax increase decreases the demand for both goods by 10%.
greater in the bread market than in the aged cheddar cheese market.
Demand is elastic if the price elasticity of demand is
greater than 1
When her income increased from $10,000 to $20,000, Heather's consumption of macaroni decreased from 10 pounds to 5 pounds and her consumption of soy-burgers increased from 2 pounds to 4 pounds. We can conclude that for Heather, macaroni
is an inferior good with an income elasticity of -1 and soy-burgers are normal goods with an income elasticity of 1.
While in college, Marty and Laura each buy 15 bus tickets per month. After they graduate and have full-time jobs, Marty buys 0 bus tickets per month and Laura buys 28 bus tickets per month. Comparing income elasticity of demand for bus tickets, Marty's
is negative, and Laura's is positive.
While in college, John and Bethany each buy five packages of mac-n-cheese per week. After they graduate and have full-time jobs, John buys six packages per week, but Bethany buys only two packages per week. When looking at income elasticity of demand for mac-n-cheese, John's
is positive, and Bethany's is negative.
If the price of natural gas rises, when is the price elasticity of demand likely to be the highest?
one year after the price increase
Which of the following expressions represents a cross-price elasticity of demand?
percentage change in quantity demanded of bread divided by percentage change in price of butter
Suppose that 50 hot dogs are demanded at a particular price. If the price of hot dogs rises from that price by 5 percent, the number of hot dogs demanded falls to 48. Using the midpoint approach to calculate the price elasticity of demand, it follows that the
price elasticity of demand for hot dogs in this price range is about 0.82.
Last month, sellers of good Y took in $100 in total revenue on sales of 50 units of good Y. This month sellers of good Y raised their price and took in $120 in total revenue on sales of 40 units of good Y. At the same time, the price of good X stayed the same, but sales of good X increased from 20 units to 40 units. We can conclude that goods X and Y are
substitutes, and have a cross-price elasticity of 1.67.
Some firms eventually experience problems with their capacity to produce output as their output levels increase. For these firms,
supply is more elastic at low levels of output and less elastic at high levels of output.
Income elasticity of demand measures how
the quantity demanded changes as consumer income changes.
The price elasticity of supply measures how much
the quantity supplied responds to changes in the price of the good.
A key determinant of the price elasticity of supply is the
time horizon